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Memorandum for Supplementary Estimate 2018-19

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Contents

1. Overview ...................................................................................................................................................... 4

1.1 Objectives ................................................................................................................................................... 4

1.2 Spending Controls ....................................................................................................................................... 4

1.3 Main areas of Spending ............................................................................................................................... 5

1.4 Comparison of spending totals sought .......................................................................................................... 6

1.5 Key drivers of spending changes since Main Estimate 2018-19 ...................................................................... 6

1.6 New policies and programmes: ambit changes ............................................................................................. 7

1.7 Spending trends .......................................................................................................................................... 7

1.8 Administration costs and efficiency plans ..................................................................................................... 8

1.9 Funding: Autumn Budget and Reserve Claims ............................................................................................... 8

2. Spending detail ...........................................................................................................................................10

2.1 Explanations of changes in spending ..........................................................................................................10

2.2 Ring fenced budgets ..................................................................................................................................18

2.3 Contingent liabilities ..................................................................................................................................18

Table A ...........................................................................................................................................................19

Glossary of Terms ...........................................................................................................................................20

1. Overview

1.1 Objectives

The Department’s overall mission is to create a safe, secure, efficient and reliable transport system that works for the people who depend on it; supporting a strong, productive economy and the jobs and homes people need.

The Department’s strategic objectives as set out in the updated version of its Single Departmental Plan are:

1. Support the creation of a stronger, cleaner, more productive economy

2. Help to connect people and places, balancing investment across the country

3. Make journeys easier, modern and reliable

4. Make sure transport is safe, secure and sustainable

5. Prepare the transport system for technological progress, and a prosperous future outside the EU

6. Promote a culture of efficiency and productivity in everything we do

1.2 Spending Controls

Department for Transport’s (DFT) spending is broken down into control totals, for which Parliamentary approval is sought.

The spending totals which Parliament votes are:

• Resource Departmental Expenditure Limit (“Resource DEL”): day to day running costs

• Capital Departmental Expenditure Limit (“Capital DEL”): investment in infrastructure

• Resource Annually Managed Expenditure (“Resource AME”): in DfT’s case mainly Network Rail

• Capital Annually Managed Expenditure (“Capital AME”): in DfT’s case mainly Network Rail

In addition, Parliament votes a net cash requirement, designed to cover the elements of the above budgets which require DfT to pay out cash in year.

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1.3 Main areas of Spending The graph below shows the key areas of DfT’s DEL funding sought in the latest Supplementary Estimate 2018-19. The numbers include depreciation.

Note: Negative values were omitted from all the Tree-maps for presentational alignment.

The Supplementary Estimate also includes £15.2bn AME, split between £8.66bn resource and £6.54bn capital. The majority of AME (£14.0bn) is allocated to Network Rail.

1.4 Comparison of spending totals sought

The Table and graph below show how the totals sought in the Supplementary Estimate compare to original budgets sought in the Main Estimate 2018-19 as well as to last year’s final outturn.

Spending Total Amounts sought this year (Supplementary Estimate 2018-19)

Compared to original budget this year. (Main Estimate 18-19)

Compared to final outturn last year. (Accounts outturn 2017/18)

£m £m % £m %

Resource DEL 4,525.4 +764.4 20.3% +852.4 23.2% Capital DEL 8,500.8 +430.0 5.3% +2,148.9 33.8% Resource AME 8,660.3 - 431.7 -4.7% +1,671.0 23.9% Capital AME 6,541.7 +795.5 13.8% -702.7 -9.7%

1.5 Key drivers of spending changes since Main Estimate 2018-19

The main cause of changes in Resource DEL are:

• Increase in administration costs primarily related to EU Exit contingency funding from HM Treasury announced in March 2018. Refer to Subhead N, note 4 in section 2.1.

• Additional funding to meet cost pressures arising in rail franchises. Refer to Subhead O, note 5 in section 2.1

• Increased funding cover for HS2 related to VAT and property revaluations. Refer to Subhead R, note 8 in section 2.1

The main cause of the change in Capital DEL is an increase in Crossrail funding. Refer to Subhead I, note 11 in section 2.1.

The main change in Resource AME is a reduction in the budget held for Network Rail’s derivative valuations, in line with latest forecasts. Refer to Subhead V, notes 20 & 22 in section 2.1.

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The main changes in Capital AME relate to increased contingency held in Network Rail and HS2. Network Rail’s overall capital budget is in CAME. HS2 requires additional budget cover for potential provisions in relation to Compulsory Purchase Orders (CPO). Refer to Subhead AC, note 23 in section 2.1.

1.6 New policies and programmes: ambit changes

• Additions to ambits referring to the “Loans for Shimmer Relocation Assistance”- This scheme is designed to fulfil the commitment made by the Secretary for State for Transport to homeowners on the Shimmer Estate with a qualifying interest, to assist them with securing a local home. It is a loan secured against the equity of a replacement home, where the homeowner only repays the loan when they transfer ownership, for instance when sold or inherited, and no interest is paid on the loan itself. In this instance, rather than a bank lending the money, the Secretary of State for Transport will loan the funds to support the purchase of a local home subject to the criteria set out. Where lending scores in DEL, the impairment gains and losses score in AME in the Resource budget. This is to reflect the fact that the department has already borne the cost of acquiring the asset.

1.7 Spending trends

The chart below shows overall spending trends for the last five years, revised plans presented in Estimates for 2018-19 and current future sending plans. Numbers exclude depreciation and other non-cash.

1.954

1.584 2.076

2.7262.868

5.961 5.4196.221

8.501

15.185

1.193

1.7802.384

2.235 1.897

6.544 6.855 7.244

6.542

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2015-16 2016-17 2017-18 2018-19 2019-20

SR13 - OUTTURN SR15 - OUTTURN SR15 - PLANS

Spending Trends, £ billion

DEL - Resource (excl non-cash) DEL – Capital AME - Resource (excl dpcn) AME - Capital

Resource DEL has broadly remained stable in cash terms up to 2018-19, but increases from 2019-20 as a result of Network Rail transferring out of AME and into the Department’s DEL boundary.

Capital DEL has been steadily increasing in cash terms since 2016-17 as a result of increasing work for Highways England and HS2. In 2019-20 this increases significantly with the incorporation of Network Rail into the Department’s DEL boundary.

Resource AME has broadly remained stable in cash terms up to 2018-19, but decreases as a result of Network Rail transferring out of AME and into the Department’s DEL boundary.

Capital AME has broadly remained stable in cash terms up to 2018-19, but decreases as a result of Network Rail transferring into the Department’s DEL boundary.

1.8 Administration costs and efficiency plans

Administration costs are set to increase by 4.8% compared to Main Estimate and 8.7% compared to last year’s final outturn.

Spending Total Amounts sought this year (Supplementary Estimate 2018-19

Compared to original budget this year. (Main Estimate 18-19)

Compared to final outturn last year. (Accounts outturn 2017/18)

£m £m % £m %

Administration costs 281.9

+12.9 4.8%

+22.5 8.7%

Increase in administration costs primarily relates to £9.5m funding for EU Exit contingency announced by HM Treasury in March 2018.

1.9 Funding: Autumn Budget and Reserve Claims Key announcements from the Autumn Budget 2018 that affect the Department’s budgetary control total are:

• Air Quality: £6.3m CDEL in relation to the UK plan for tackling roadside nitrogen dioxide concentration.

• Transforming Cities Fund (TCF): Mayoral allocation of £60m CDEL in relation to initial support interventions in the first year of the TCF scheme, which will enhance productivity and reduce congestion, and invite proposals which introduce new mobility systems and technology.

• Local Road Maintenance: £420m CDEL in relation to local road maintenance.

The Department requested and received Reserve Claims in relation to the following:

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• Trust Ports: £110m CDEL non-cash cover for net borrowing. • Crossrail: £465m CDEL HM Treasury agreed to provide additional budget cover so that the

Department could support continued works on Crossrail. The majority of this additional cover is to provide the initial element of an agreed loan to GLA of £1.3bn to ensure completion of the project.

• EU Exit contingency funding: £41.6m Resource DEL (£32.1 programme + £9.5 admin) and £39m Capital DEL has been provided from the HM Treasury reserve to support the Department’s EU Exit contingency planning, as announced in March 2018.

The Department received additional budget cover for the following non-standard Reserve Claims:

• Additional Rail funding: £141m RDEL This additional budget cover mainly reflects compensation from HM Treasury to the Department as part of a risk sharing agreement following lower than forecast rail revenue income in 2018-19. The risk sharing calculation is based on a combination of GDP and Central London Employment data and reflects the OBR’s latest GDP forecasts. This budget cover also includes an agreement from HM Treasury to provide additional support to meet unplanned rail franchising costs.

• HS2 Ltd VAT claim and Intending Trader Status: The forecast of VAT recovered by HS2 to the end of 2018-19 is £650m (of which £552.3m is CDEL and £97.7m is RDEL). The validity of HS2’s intending trader status is being reviewed by HMRC and we believe it prudent to ensure there is budget cover in the Estimate in preparation for a potential decision against HS2.

In addition to the above, the Department is transferring £45m Capital DEL funding for London Congestion to 2019-20 budgets due to reprofiling of this work.

2. Spending detail

2.1 Explanations of changes in spending Resource DEL

The table below shows a breakdown of changes by programme within each RDEL Estimate line compared with the 2018-19 Main Estimate.

Subheads Description Resource DEL £ million %

Supplementary Estimate 18/19

Main Estimate 18/19

Change from Main Estimate

note number

A Tolled Crossings -191.9 -196.6 4.7 -2% B Local Authority Transport 374.9 373.4 1.4 0%

C Highways England ALB (net) 2,713.3 2,636.7 76.6 3%

D Funding of Other ALBs (net) -24.1 -17.2 -6.9 40% E Other railways 76.7 68.6 8.1 12% F Sustainable Travel 92.0 103.4 -11.4 -11% 1

G Bus Subsidiaries and Concessionary Fares 257.2 259.9 -2.7 -1%

H GLA Transport grants -23.9 -24.9 1.1 -4% I Crossrail 4.4 5.0 -0.6 -12%

J Aviation, Maritime, Security & Safety 67.6 70.7 -3.1 -4%

K Maritime & Coastguard Agency 349.1 355.4 -6.4 -2%

L Motoring Agencies 82.8 69.6 13.2 19% 2

M Science, research and support functions 44.3 23.5 20.9 89% 3

N Central Administration 320.9 180.6 140.3 78% 4

Departmental Unallocated Provision 0.0 10.0 -10.0 -100%

O Support for Passenger Rail Services -33.4 -404.0 370.5 -92% 5

P High Speed Rail 60.1 74.1 -14.1 -19% 6

Q Transport Development Fund 2.8 26.3 -23.5 -89% 7

R High Speed Two Limited (net) 330.0 127.5 202.5 159% 8

S East West Rail Company Limited (net) 9.3 0.0 9.3 - 9

T Funding of Other ALBs (net) non-voted 13.2 19.1 -5.9 -31%

Total voted and non-voted 4,525.3 3,761.0 764.3 20%

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Differences of more than 10% and which are more than £+/-10m are explained below. Numbers relate to the relevant row in the table above.

1. Sustainable Travel Resource DEL spending under these subheads is, overall, forecast to reduce by £11.4m or 11%. This is driven by

• reduction of £7.8m due to plug in car grant payments. Although the overall value of plug in car grant subsidies has not changed significantly the split between private purchases bought outright (RDEL) and purchases on finance (CDEL) has. This has resulted in an overall reduction in the RDEL element of the grant.

• £3.1m reduction which reflects a revised assessment of the net operational costs relating to the implementation of Smart Ticketing across Train Operating Companies.

2. Motoring Agencies.

Resource DEL spending under these subheads is, overall, forecast to increase by £13.2m or 19% since Main Estimate. This is mainly driven by

• allocation of additional funding agreed in Settlement letter of 16th March 2018, in relation to the department’s EU exit preparations.

3. Science, Research and Support functions

Resource DEL spending under these subheads is, overall, forecast to increase by £20.9m or 89% since Main Estimate. This is driven by

• allocation of additional funding agreed in Settlement letter of 16th March 2018, in relation to the department’s EU exit preparations.

4. Central Administration

Resource DEL spending under these subheads is, overall, forecast to increase by £140.3m or 78%. This is driven by

• allocation of £9.5m funding for EU Exit contingency programmes. • receipt of an additional £100m non-cash cover for HS2 inventory. An assessment of the

liability for HS2 inventory is underway, but the final results will not be available until the first quarter of 2019.

• receipt of additional £5m for HS2 Land and Property budget • £3m budget cover transfer to Department for International Trade.

5. Support for Passenger Rail Services Net Resource DEL income for Passenger Rail Services is forecast to reduce by £370.5m or 92% since Main Estimate. This is largely driven by

• falling passenger income including a net reduction of £150m because of the earlier than anticipated end of the Virgin Trains East Coast franchise, with LNER now running the railway at a significantly lower premium.

To mitigate the impact of this during the year, we have received the following:

• receipt of £111m from HM Treasury via the Rail Risk Share mechanism to reflect deteriorating rail revenue income. This is in line with the agreed mechanism with HM Treasury and the number is based on a combination of GDP and Central London Employment Data reflecting the latest OBR’s GDP forecast;

• receipt of £30m to provide support for cost pressures arising in rail franchises; • receipt of £24.8m from Welsh Government (WG) in relation to baselined regulatory charges,

relating to the Wales and border franchise; • receipt of £121m from Network Rail.

6. High Speed Rail

Resource DEL spending under these subheads is, overall, forecast to reduce by £14.1m or 19%. This is driven by

• the decision to transfer Resource budgets at the Supplementary Estimate from the High Speed and Major Rail Projects Group to the newly formed East West Rail Company. The remainder is reprofiling of expenditure across future years.

7. Transport Development Fund

Resource DEL spending under these subheads is, overall, forecast to reduce by £23.5m or 89%. This is a result of

• a reallocation of budgets to other subheads.

8. High Speed Two Limited Resource DEL spending under these subheads is, overall, forecast to increase by £202.5m or 159%. This is driven by

• inclusion of the possible requirement for RDEL cover pending the outcome of the ongoing VAT case review by HMRC. The validity of HS2’s intending trader status is being reviewed by HMRC and we believe it prudent to ensure there is budget cover in the Estimate in preparation for a potential decision against HS2.

• a Capital to Resource DEL budget switch.

9. East West Rail Company Limited (net) Resource DEL spending under these subheads increased by £9.3m. This is driven by

• The creation of East West Railway Company Limited, the Department’s latest arm’s length body (ALB).

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Capital DEL

Subheads Description Capital DEL £ million %

Supplementary Estimate 18/19

Main Estimate

18/19

Change from Main Estimate

A Tolled Crossings 1.0 1.3 -0.3 -20% B Local Authority Transport 1,806.7 1,337.7 469.0 35% 10

C Highways England ALB (net) 2,648.3 2,706.3 -58.0 -2%

D Funding of Other ALBs (net) 15.3 17.7 -2.3 -13%

E Other railways 40.1 157.9 -117.8 -75% 11 F Sustainable Travel 376.8 379.6 -.8 1%

G Bus Subsidiaries and Concessionary Fares 8.7 2.7 6.1 229%

H GLA Transport grants -42.5 0.0 -42.5 I Crossrail 550.0 18.0 532.0 2956% 12

J Aviation, Maritime, Security & Safety 129.0 18.4 110.6 602% 13

K Maritime & Coastguard Agency 11.9 12.0 -0.1 -1%

L Motoring Agencies -3.7 -17.5 13.9 -79% 14

M Science, research and support functions 63.1 40.3 22.9 57% 15

N Central Administration 4.2 17.7 -13.5 -76% 16

Departmental Unallocated Provision 0.0 184.4 -184.4 -100% 17

O Support for Passenger Rail Services 0.1 0.0 0.1

P High Speed Rail 561.2 1,335.0 -773.8 -58% 18

Q Transport Development Fund 140.0 202.6 -62.6 -31% 19

R High Speed Two Limited (net) 2,189.8 1,656.0 533.8 32% 20

S East West Rail Company Limited (net) 0.2 0.0 0.2

T Funding of Other ALBs (net) non-voted 0.0 0.0 0.0

Total voted and non-voted 8,500.6 8,069.9 430.7 5%

Differences of more than 10% and which are more than £+/-10m are explained below. Numbers relate to the relevant row in the table above. Further detail of spending within these totals is given in the table in Table A (provided separately).

10. Local Authority Transport Capital DEL spending under these subheads is, overall, forecast to increase by £469m or 35%. This is largely driven by

• decision made at Autumn Budget 2018 for Treasury to provide additional funding for local roads maintenance in 2018-19.

• Transferring £45m of Capital DEL funding for London Congestion to 2019-20 budgets due to reprofiling of this work.

11. Other railways Net Capital DEL spending under these subheads is forecast to reduce by £117.8m or 75%. This is driven by:

• a reduction of £22.1m, reflecting a partial re-profiling of expenditure, and the transfer to Network Rail of £20m to deliver flood resilience schemes;

• A reduction of £57m for Digital Rail, reflecting a partial re-profiling, and the transfer to Network Rail of £30.5m for the delivery of the Cab Fitment programme;

• A reduction of £12m relating to reprofiling of contract variations and depot connection costs relating to the IEP programme;

• A reduction of £22m in relation to re-profiling of development expenditure, including station development funds, and the transfer of £3.5m to Network Rail for delivery of station commercial project schemes.

12. Crossrail

Net Capital DEL spending under these subheads is, overall, forecast to increase by £532m. This is driven by:

• A £100m increase in cost pressures in the project, partly addressed by £65m of additional funding;

• The decision to provide £400m of additional cover to provide the initial element of an agreed loan to GLA of £1.3bn to ensure the completion of the project;

• a reduction of £63m relating to re-profiling of additional support for on-network works, and the transfer of £31.5m of this funding to Network Rail.

• the deferral of £95m of income from 3rd party contributions, as a result of delays to the project.

13. Aviation, Maritime, Security & Safety

Capital DEL spending under these subheads is forecast to increase by £110.6m as a result of additional non-cash cover for Trust Ports net borrowing.

14. Motoring Agencies

Capital DEL spending under these subheads is forecast to increase by £13.9m, due to reforecasting of income since the publication of the Main Estimate.

15. Science, Research and Support functions Capital DEL spending under these subheads is forecast to increase by £22.9m or 57% since Main Estimate. This is driven by funding for EU Exit contingency programmes.

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16. Central Administration Capital DEL spending under these subheads is forecast to reduce by 13.5m since Main Estimate. This is driven by

• Re-profiling of expenditure to 2019-20 because of revised plans.

17. Departmental Unallocated Provision (DUP) As part of the Department planning work at the beginning of the financial year, a DUP of £184.4m CDEL was created. Following a review of in-year spending plans, the full amount is now allocated to various areas of the Department.

18. High Speed Rail Capital DEL spending under these subheads is, overall, forecast to reduce by £773.8m or 58%. This is driven by

• re-profiling of expenditure across future years.

19. Transport Development Fund Net Capital DEL spending under these subheads is, overall, forecast to reduce by £62.6m or 31%. This is driven by

• A reallocation of budgets to other subhead lines.

20. High Speed Two Limited (net) Net Capital DEL spending under these subheads is, overall, forecast to increase by £533.8m or 32%. This is driven by

• inclusion of the possible requirement for budget cover pending the outcome of the ongoing VAT case review by HMRC. The validity of HS2’s intending trader status is being reviewed by HMRC and we believe it prudent to ensure there is budget cover in the Estimate in preparation for a potential decision against HS2.

Resource AME

Subheads Description Resource AME £ million %

Supplementary Estimate 18/19

Main Estimate

18/19

Change from Main Estimate

U Highways England (net) 6.0 6.0 0.0 0% V Network Rail (net) 8,267.3 8,717.3 -450.0 -5% 21

W Funding of Other ALBs (net) 79.9 79.9 0.1 0%

X Other Railways 188.5 188.7 -0.2 0%

Y Aviation, Maritime, Security & Safety -2.5 -2.5 0.0 0%

Z Maritime & Coastguard Agency 1.0 1.0 0.0 0%

AA Motoring Agencies -2.3 -2.4 0.0 -2% AB Central Administration 93.4 93.3 0.1 0% AC High Speed Rail 0.0 0.0 0.0

AD High Speed Two Limited (net) 18.0 0.0 18.0

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AE East West Rail Company Limited (net) 0.0 0.0 0.0

AF Funding of Other ALBs (net) 10.9 11.0 -0.1 -1%

Total voted and non-voted 8,660.2 9,092.2 -432.0 -5%

Differences of more than 10% and which are more than £+/-10m are explained below. Numbers relate to the relevant row in the table above.

21. Network Rail (NR) Net Resource AME spending has been reduced by £450m/ 5% from the Main Estimate. This is a result of transferring Resource AME non-cash to Capital AME non-cash.

22. High Speed Two Ltd Increase of £18m reflects changes in provisions in HS2 Ltd.

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Capital AME

Subheads Description Capital AME

£ million %

Supplementary Estimate

18/19

Main Estimate

18/19 Change from Main

Estimate U Highways England (net) 40.0 40.0 0.0 0% V Network Rail (net) 5,739.7 5,314.2 425.5 8% 23

W Funding of Other ALBs (net) 0.0 0.0 0.0

X Other Railways 0.0 0.0 0.0

Y Aviation, Maritime, Security & Safety -20.0 -20.0 0.0 0%

Z Maritime & Coastguard Agency 0.0 0.0 0.0

AA Motoring Agencies 0.0 0.0 0.0 AB Central Administration 0.0 0.0 0.0 AC High Speed Rail 750.0 412.0 338.0 82% 24

AD High Speed Two Limited (net) 32.0 0.0 32.0 25

Total voted and non voted 6,541.7 5,746.2 795.5 14%

Differences of more than 10% and which are more than £+/-10m are explained below. Numbers relate to the relevant row in the table above.

23. Network Rail (NR) Net Capital AME spending will be increased by £425.5m/8% as a result of the £450m transfer from RAME budgets (see note number 16 on Resource AME derivatives) and a net reduction of £24.5m because of the transfers to DfT’s core DEL budgets.

24. High Speed Rail (HSR) £338m increase in CAME relates to movement in capital provisions.

25. High Speed Two Limited (net) £32m increase reflects changes in Capital provisions in HS2 Ltd

2.2 Ring fenced budgets Within the totals, the following elements are ring fenced i.e.: savings in these budgets cannot be used to fund pressures on other budgets.

Spending Total Amounts sought this year (Supplementary Estimate 2018-19

Compared to original budget this year. (Main Estimate 2018-19)

Compared to final outturn last year. (Accounts outturn 2017/18)

£m £m % £m %

High Speed Two Limited (Resource DEL)

330.0 +202.5 +158.9% +320.9 +3526.1%

High Speed Two Limited (Capital DEL) 2,189.8 + 533.8 +32.2% +1,246.5 +132.1% Highways England (Capital DEL) 2,648.3 - 58.0 -2.1% +339.6 +14.7% Depreciation (Resource DEL) 1,799.0 + 100.0 +5.9% +219.5 +13.9% Depreciation (Resource AME) 6,275.0 - 450.0 -6.7% + 1,194.0 +23.5%

2.3 Contingent liabilities The following statutory liabilities have been revised since Main Estimate:

• Land Compensation Act 1973, Part I: Highways England: possible obligations in relation to land and property acquisitions increased by £1.4m, from £92.6m to £94m to reflect the characteristics of the land that Highways England is acquiring, i.e. the extent, the location and the price, which in turn reflects Highways England’s programme of road schemes.

• Railways Act 1993, Transport Act 2000: Contingent liabilities arise from signing of new, replacement and extended passenger rail franchise agreements, and other agreements to encourage railways investment. The liability reduced from £2.433bn to £2.054bn because our liability decreases as the contracts draw closer to their end date.

• CTRL Act 1996. Undertaking under the HS1 concession agreement increased from £3.2bn to £4bn to reflect the fact that termination for default events is also a contingent liability, arising from events outside of our control.

The following non-statutory liabilities have been revised since Main Estimate:

• In 2008 the Secretary of State entered into quantifiable (disclosed) and unquantifiable indemnities under the Crossrail Sponsor's Agreement and the Project Development agreement (between DfT and TfL as joint sponsors) and the Project Delivery Agency (Crossrail Limited). The potential contingent liability is reduced from £5.6bn to £5.1bn. This reflects re-estimation of the amount of outstanding project debt.

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• In 2013 the Secretary of State agreed to quantifiable (disclosed) and unquantifiable assurances, warranties, indemnities and potential losses under the Thameslink Rolling Stock contracts with Siemens, Network Rail and Cross London Trains. The potential contingent liability is reduced from £2.7bn to £1.1bn as two of the underlying indemnities had lapsed by 31 March 2018.

• In 2012 the Secretary of State agreed to quantifiable (disclosed) and unquantifiable assurances, warranties, indemnities and potential losses under the Inter City Express Rolling Stock contracts with Agility Consortium and Network Rail. The potential contingent liability is increased from £3.6bn to £6.2bn. Between the Main Estimate and the year-end, two further items relating to IEP have been identified. Both are remote-risk.

• Commitment by the Department to fund any shortfall of toll revenue from the Mersey Gateway Bridge to meet Halton's financial obligations under the Demand Management Participation Agreement. Reduced from £1.56bn to £1.489bn. The Bridge is now open to traffic and generating toll revenues. As a result, the potential shortfall (the difference between Halton’s financial obligations and the amount of revenues generated to date) is reducing.

• Other contingent liabilities, including legal claims increased from £1.085bn to £1.278bn due to the settlement of existing claims and the occurrence of new claims, some of them higher in value.

Table A Table provided separately.

Glossary of Terms Administration Budget: Expenditure incurred by departments and agencies in providing those services which are not directly associated with frontline service delivery. Includes pay, training, travel, accommodation, stationery, utilities, etc.

Ambit: The ambits describe the activities for which provision sought in the Estimate will be used. They are set out in Part I of the departmental Estimate. Separate ambits are required for both expenditure and income in each budgetary category included in the Estimate (DEL, AME and Non- Budget).

Annually Managed Expenditure (AME): A Treasury budgetary control for expenditure which is generally less predictable and controllable than expenditure in DEL.

Arm’s Length Body (ALB): A Non-Departmental Public Body, a company in which the department has a significant shareholding, or other sponsored body.

Budget Exchange: A mechanism that allows Departments either a) to carry forward a forecast DEL underspend from one financial year to the next or b) surrender a forecast DEL underspend in advance of the end of the financial year (through a DEL reduction in the Supplementary Estimate) in return for a corresponding DEL increase in the following year.

Contingent liabilities: Potential liabilities that are uncertain but recognise that future expenditure may arise if certain conditions are met or certain events happen.

Departmental Expenditure Limit (DEL): A Treasury budgetary control for expenditure which is generally within the department’s control and can be managed within fixed four-year limits (Comprehensive Spending Review period).

Departmental Unallocated Provision (DUP): An amount held back by a department to meet unforeseen pressures in expenditure and is not allocated at the start of the year to any particular programme. It forms part of the DEL.

Derivatives: A derivative is a financial contract that derives its value from an underlying asset. The buyer agrees to purchase the asset on a specific date at a specific price. Derivatives can be used for a number of purposes, including insuring against price movements, increasing exposure to price movements for speculation or getting access to otherwise hard-to-trade assets or markets. Network Rail has in the past bought derivatives, such as interest rate swaps, to offset changes in the prices of their borrowing arrangements, or purchases of plant. This helped them to forecast their financial position more accurately over a five-year control period, and to plan other aspects of their budgets and activities more effectively over that period.

Grant-in-Aid: Financing payment made by a department to a Non-Departmental Public Body or other Arm’s Length Bodies.

Non-budget: This is a parliamentary control, one of the main items that appear in this limit relates to Prior Period Adjustments.

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Provision: A provision is set up to cover recognised liabilities which either have to be paid out by departments over a period of more than one year (such as pensions or contractual obligations), or are held back by the departments pending decision for eventual payment if directed by a ruling body.

Reserve: A small amount of both resource and capital DEL budgetary provision that has not been allocated by HM Treasury to a department. The function of the Reserve is to assist departments with the costs of genuinely unexpected and unforeseeable events, which are also large relative to the department's available resources.

Spending Review (SR): A cross-Government review of the departmental aims and objectives and analysis of all spending programmes, with the resultant allocation of four-year Departmental Expenditure Limits (DEL).

Supplementary Estimate: A single opportunity for a Department to seek parliamentary authority for additional resources and/or cash above that obtained in the Main Estimate, or vary the way in which resources are allocated. Supplementary Estimates are normally presented in February.

Voted Expenditure: That which has been authorised by Parliament in response to Supply Estimates.

Non-voted Expenditure: Public expenditure outside that voted by Parliament in Supply Estimates. It is largely used for ALB budgets.